As pension funds, asset managers and insurers struggle to generate returns on traditional diversified long-only portfolios of stocks, bonds and commodities, investment banks are having more success persuading them to put on exposures linked to cross-asset derivatives strategies. One of the current favourites is Risk Premia, which seeks to move away from directional bets, instead generating single sources of return in each sub-category of a multi-asset portfolio. In many ways the Risk Premia indices created by the banks are similar to sophisticated hedge fund strategies, using options to isolate returns in areas such as correlation, volatility, small cap versus large cap, and momentum.
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